Five years after a Nasdaq IPO, Chinese video site Bilibili faces mounting pressure to reach profitability. Despite 315 million monthly active users, the user-generated content site well-loved by China’s Gen Z and millennials has yet to find a way to sustain its growth. 

On June 1, Bilibili reported its first quarterly earnings of 2023, showing continued flat growth in revenue but far reduced net losses. It made RMB 5.1 billion ($738.2 million) in revenue, representing 0.3% yearly growth and a 16.39% decrease from the last quarter. The company reported a net loss of RMB 629.6 million, narrowing 72% from the same period in 2022, and 58% less than the previous quarter’s RMB1.5 billion losses. 

Bilibili attributed narrowed losses to effective spending control, specifically a reduction of 8% in revenue-sharing, 16% in server and bandwidth, and 30% in sales and marketing compared to the same period in 2022. 

Despite continued improvements in cutting its losses, Bilibili is facing persistently slower revenue growth over the past several years. In 2022, Bilibili brought in RMB 21.9 billion (US$3.2 billion) in revenue, up 13% from the previous year. To compare, in 2020, revenue grew by 77% in a year, and in 2021, by 62%. 

Bilibili had RMB 19.56 billion left in cash at the end of 2022. Based on Bilibil’s current operating expenses, the cash will be enough to sustain it for another five to seven quarters, or until mid-to-late 2024, according to its earnings report. With a tighter investment sentiment and an increasingly competitive online content space, Bilibili needs to achieve profitability soon, or at least show investors that it is on the right path. 

Bilibili’s plan for commercialization

Compared to other mainstream long-video platforms in China, Bilibili has a competitive advantage: decent quality content generated by users. This makes its video content and style completely different from long-video competitors such as iQiyi, Mango TV, Tencent Video, and Youku, which focuses on professional content like TV dramas, variety shows, and movies. 

Bilibili understands its strength and sees the engagement of users within the community as the foundation of its business. It has taken strong measures to protect that community feeling, such as when founder Xu Yi promised users in 2014 that the platform would never do bumper ads on newly imported anime series

But as Bilibili faces a more competitive market and an urgency to make money, integrated marketing and performance-based ads have become greater focus areas. 

Bilibili plans to utilize its creators’ influence and the platform’s community atmosphere to expand customized and in-stream ads, according to the two most recent quarterly earnings calls. 

Li Ni, vice chairman and COO of Bilibili, said in the first quarter earnings call that in order to expand ad revenue, the platform selected six specific industries last year and developed precise advertising models tailored to each industry. These include gaming, online shopping, consumer electronics, fast-moving consumer goods, and automobiles.

Li emphasized Bilibili’s advantages in gaming and e-commerce in particular. For example, Bilibili integrated its internal units to convert more gaming-interested users to spend more on game-related items on the platform, after seeing that more than 40% of mobile users on Bilibili watched gaming content daily. Li said the platform also saw 110% yearly growth in ad revenue growth in the online shopping segment after sharing data and ads with Alibaba, Pinduoduo, and JD. 

Bilibili currently uses Huahuo, an advertising platform established in late 2020, to connect advertisers directly to its content creators. In the past, the platform relied more on highly customized and creative ads (such as known creators making customized scripts and video ads). It may now create more general ads for creators to embed in their videos, speeding up ad execution. 

E-commerce is another place Bilibili is seeing growth, viewed by the platform as “an opportunity for increased advertising and revenue streams for content creators,” according to its first-quarter earnings call. In the first quarter, the platform saw more than 10 million users watch shopping suggestions and other e-commerce-related content on Bilibili daily, surpassing expectations. 

Competing for Chinese users’ viewing time

Two factors have contributed to Bilibili’s revenue slowdown in the past years. The first is short-term: Covid-related hits on ads and e-commerce revenues. The second is more long-term and structural: Bilibili faces increased competition from other rising content platforms — short video platforms like Douyin (the Chinese version of TikTok), Kuaishou, social e-commerce platforms like Xiaohongshu, and others. 

In 2022, like many other businesses, Bilibili was hit by uncertain macroeconomics, as advertisers and consumers scaled back spending during Covid resurgences. The video site saw sharp quarterly declines of 34.42% and 13.33% in advertising in the first quarters of 2022 and 2023, and a recovery in the second to fourth quarters of 2022. As China’s economy continues to recover in the second half of 2023, the company is likely to overcome these setbacks. 

Yet Bilibili faces a more entrenched threat: the rise of short video platforms and social content platforms that increase competition in the content sector, making it harder for Bilibili to grow profits. 

Short video platforms like Douyin and Kuaishou are expanding much faster in the past five years, in terms of market size, than video platforms like Bilibili. 

China’s online video sector has a market size of RMB 600.9 billion ($92.5 billion) and a 32% annual growth rate in 2020, according to China Netcasting Services Association (CNSA). Short video platforms benefited from the widespread success of Douyin and Kuaishou, with astonishing annual growth rates of 179%, 731%, and 172% in 2017, 2018, and 2019. Although the growth rate of short videos has slowed down to 42% in 2021, it still far exceeds the average annual growth rate of around 20% for other long-form video platforms over the past five years. In 2020, short videos accounted for more than a third of the online video industry, exceeding the 20% market size of long-form videos.

Moreover, Xiaohongshu, a content platform known for product reviews and lifestyle blog posts targeting mobile users, is also expanding its own commercialization potential. The private company saw about 200 million monthly active users on its platform in 2022, according to Qian-gua data

As Bilibili faces increasing revenue pressures, the company is compelled to explore aggressive advertising strategies. The platform has already suffered public backlashes. In April, some creators complained that the site’s updated incentive system has reduced their income, with some experiencing a significant drop in income. To reach its own goal of becoming break-even in 2024, Bilibili needs to prove to advertisers and marketers it has value and competitive advantage over other content platforms while maintaining its healthy user and creator ecosystem. 

Qin is the managing editor at TechNode. Previously, she was a reporter at the South China Morning Post's Inkstone. Before that, she worked in the United States for five years. She was a senior video producer...